Tag: Environment and public infrastructure
Road Congestion Pricing with A Public Transport Cashback Mechanism
Traffic jams are a major problem in cities leading to wasted time, air pollution, reduced accessibility, and, in turn, lower economic activity. Transport economists widely agree that charging drivers fees for using busy roads during rush hours (congestion pricing) is the best answer to road congestion problems. However, such a policy is rarely used, mostly because people see it as unfair in how it affects different income groups. We propose an innovative personalized public transport cashback mechanism to make congestion pricing more acceptable. Recent surveys in Riga and Vienna show that people are more willing to support the introduction of congestion pricing when it includes a cashback component.
Road Congestion Pricing and Its Discontent
Road Congestion Pricing
Traffic jams happen when too many cars at the same place and at the same time use a road of a limited capacity. Building new roads or lanes is expensive, especially in cities, and it only provides short- and medium-term traffic improvements, with little impact on congestion in the long term (Ossokina et al., 2023; Hymel, 2019). Duranton and Turner (2011) show that when major roads are expanded, more people start using them and, over time, congestion returns to the same level as before. Meanwhile, a travel mode shift from cars to public transport and bicycles also requires investments and is difficult to implement in practice.
Dynamic congestion pricing, when road tolls vary based on the time of day, is designed to spread out traffic flow over time without the need to expand road infrastructure (Small and Verhoef, 2007). Notably, this approach does not aim to reduce the total number of cars on the road. Instead, it encourages them to spread their travel times more evenly, ensuring that the road capacity can handle the traffic without congestion.
Dynamic congestion pricing typically works as follows: there is no charge at night, the toll is small in the early morning, then it gradually increases during the morning until it reaches its peak. The toll then decreases in the afternoon before rising again during the evening. This system works in a congestion zone, which is usually the busiest areas of a city. When a car enters the zone, video cameras automatically identify it without stopping the car. There are no toll booths on the streets – an electronic system calculates the toll based on the time of day and charges the driver automatically through a linked account. Cities can tailor the system to fit their specific geography and infrastructure, offering exemptions for certain vehicles and pass-through traffic (for practical examples, visit the Swedish Transport Agency’s website to learn more about congestion pricing in Stockholm and Gothenburg).
By reducing the number of cars during congested hours, such dynamic pricing benefits both the city and its residents:
- (i) Drivers enjoy faster travel times as road toll allows them to gain time in exchange for money. For example, in the morning, drivers can leave for work later as they no longer need to account for time spent in traffic jams.
- (ii) Non-drivers enjoy congestion-free neighborhoods with improved air quality and overall higher quality of life.
- (iii) The city can tackle congestion without making large investments in new roads. The funds collected from drivers not only cover the toll system maintenance, but also contribute to the cost of the infrastructure they use. The funds may also be used to improve public transportation.
Low Public Acceptability
In light of the benefits of congestion pricing, it seems surprising that very few cities actually use it. Notable examples include London, Singapore, Stockholm and Gothenburg. New York City introduced its congestion charge on the 5th of January 2025, the first in the US. This stands in stark contrast to paid on-street parking, another transport policy measure that has been successfully implemented in almost every large city across Europe. The disparity arises because the general public often sees congestion pricing as an additional tax, believing it unfairly affects lower-income individuals. Presumably, low-income individuals have less flexible work schedules and fewer travel choices, making it harder for them to avoid traveling during high-toll periods (Selmoune et al., 2020). Moreover, they would spend a larger share of their income on road tolls compared to wealthier drivers, which makes congestion pricing a regressive policy.
Even though congestion pricing is not a tax and is not meant to redistribute funds, it may still appear as such to the public. This perception leads to vocal public resistance to road pricing which, in turn, discourages politicians from implementing the policy. Another reason for public skepticism is a lack of trust in politicians and municipal officials to manage the collected funds effectively, with concerns that the money may not be spent in ways that benefit the city.
Public Transport Cashback
Cashback Mechanism
To address the perceived unfairness of congestion pricing and fears about the misuse of collected funds, we propose a personalized public transport cashback mechanism – a novel approach that has not yet been implemented anywhere. Instead of collecting the tolls, we suggest immediately transferring the money back to drivers in the form of public transport vouchers or cashback. That is, when a driver pays road toll, almost the entire amount is credited directly to their personal public transport account/card as cashback, while a small portion of the toll is retained to cover maintenance costs of the road pricing system. The cashback can only be used to pay for public transport. Since the road toll is returned to drivers in the form of public transport cashback, there is no need for money redistribution by public authorities.
Our pricing mechanism retains the core feature of conventional dynamic road pricing: the road toll motivates drivers to adjust their travel times, helping to prevent traffic jams. The toll values are likely to be different though, as the toll now has additional value to drivers who might use the cashback for public transport. While this feature reduces the efficiency of the toll compared to conventional congestion pricing, the cashback mechanism also introduces a new beneficial property. By motivating some drivers to occasionally switch to public transport, it further reduces car use and helps ease congestion. The interplay between these two factors ultimately determines the required congestion toll values.
The cashback can be accumulated over several years and is non-transferable to prevent drivers from using their cars more often. The cashback mechanism would likely work for private cars only, though exceptions and specific features can be adjusted to local circumstances. Public transport companies are likely to benefit from additional revenue through increased ticket sales and unused, expired cashback. However, since public transport ticket prices do not always cover the full cost of providing the service, it is important to balance the additional costs of implementing the cashback mechanism with the expected revenue gains. This could potentially be done by reducing the cashback portion relative to the toll share retained for system maintenance.
However, congestion pricing with a cashback mechanism is not a standalone solution or a silver bullet. It works best when combined with improvements of the public transport network, as this encourages drivers to make regular use of their cashback.
Transport Survey Data
The key idea behind the cashback mechanism is that it gives drivers direct and transparent control of their money, which is expected to make road pricing policy more acceptable. Whether this holds true or not is an empirical matter. This was tested by considering the means of a representative survey conducted in Riga (Latvia) and Vienna (Austria) in the summer of 2024. The survey includes 1,000 residents in both capitals and their respective surrounding municipalities. It features questions about respondents’ socio-demographic characteristics, current travel options, commute patterns (including accompanying trips with children), and their political and social attitudes. It also includes two stated-choice experiments exploring the acceptability of congestion pricing and potential changes in travel behaviour if such pricing is introduced. While detailed data analysis is still ongoing, this policy brief highlights some intriguing preliminary insights.
In the survey, we ask the respondents whether they would vote in a referendum in favor of congestion pricing under four different scenarios for using the collected toll funds: (i) transferring them as a public transport cashback, (ii) sharing them equally among all city inhabitants, (iii) leaving the allocation decisions to local politicians, or (iv) using them to support eco-friendly transport. Respondents were familiarized with the topic before answering the question by participating in a stated-choice experiment about congestion pricing acceptability. The experiment included a detailed explanation of how congestion pricing works, along with a potential congestion zone map. Figure 1 shows responses from Riga, and Figure 2 from Vienna.
Figure 1. Responses from Riga. “Would you support congestion pricing in a referendum if the collected toll funds were used this way?”
Source: Representative survey in Riga in summer 2024.
Figure 2. Responses from Vienna. “Would you support congestion pricing in a referendum if the collected toll funds were used this way?”
Source: Representative survey in Vienna in summer 2024.
In Riga, the cashback option is the most popular, with more participants supporting than opposing it. The overall positive attitude towards congestion pricing with the cashback option suggests that Riga might already be ready to implement it. In Vienna, the cashback ranks a close second after the green transport option. This result shows that cashback might be a viable option also in Vienna.
Conclusion
To overcome public skepticism towards road congestion pricing, we propose a cashback mechanism. It involves returning toll money back to drivers as public transport cashback. The cashback mechanism has several benefits: drivers retain some control of their money, there is no need to redistribute collected toll funds, and it helps reduce congestion without major investments in road infrastructure. Surveys in Riga and Vienna in 2024 show support for the cashback option. While the specifics of such a solution should be tailored to each city’s needs, many cities struggling with congestion could benefit from implementing road congestion pricing with a public transport cashback mechanism.
Acknowledgment
This policy brief is based on a collaborative research effort by economists Sergejs Gubins from Riga (BICEPS) and Stefanie Peer and Martina Reggerova from Vienna (WU) as part of the “Tolls That Work” project, supported by the ERA-NET research grant. Agreement No ES RTD/2023/11. See project updates on the webpage:
https://www.wu.ac.at/en/spatialeconomics/projects/city-tolls-that-work
References
- Duranton, G., & Turner, M. A. (2011). The fundamental law of road congestion: Evidence from US cities. American Economic Review, 101(6), 2616–2652. https://doi.org/10.1257/aer.101.6.2616
- Hymel, K. (2019). If you build it, they will drive: Measuring induced demand for vehicle travel in urban areas. Transport Policy, 76, 57–66. https://doi.org/10.1016/j.tranpol.2018.12.006
- Ossokina, I. V., van Ommeren, J., & van Mourik, H. (2023). Do highway widenings reduce congestion? Journal of Economic Geography, 23(4), 871–900. https://doi.org/10.1093/jeg/lbad025
- Selmoune, A., Cheng, Q., Wang, L., & Liu, Z. (2020). Influencing factors in congestion pricing acceptability: A literature review. Journal of Advanced Transportation, 2020, 4242964, 11 pages. https://doi.org/10.1155/2020/4242964
- Small, K. A., & Verhoef, E. T. (2007). The economics of urban transportation. London: Routledge.
- The Swedish Transport Agency. https://www.transportstyrelsen.se/en/road/vehicles/taxes-and-fees/road-tolls/congestion-taxes-in-stockholm-and-gothenburg
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Navigating Environmental Policy Consistency Amidst Political Change
Europe, like other parts of the world, currently grapples with the dual challenges of environmental change and democratic backsliding. In a context marked by rising populism, misinformation, and political manipulation, designing credible sustainable climate policies is more important than ever. The 2024 annual Energy Talk, organized by the Stockholm Institute of Transition Economics (SITE), gathered experts to bring insight into these challenges and explore potential solutions for enhancing green politics.
In the last decades, the EU has taken significant steps to tackle climate change. Yet, there is much to be done to achieve climate neutrality by 2050. The rise of right-wing populists in countries like Italy and Slovakia, and economic priorities that overshadow environmental concerns, such as the pause of environmental regulations in France and reduced gasoline taxes in Sweden, are significantly threatening the green transition. The current political landscape, characterized by democratic backsliding and widespread misinformation, poses severe challenges for maintaining green policy continuity in the EU. The discussions at SITEs Energy Talk 2024 highlighted the need to incorporate resilience into policy design to effectively manage political fluctuations and ensure the sustainability and popular support of environmental policies. This policy brief summarizes the main points from the presentations and discussions.
Policy Sustainability
In his presentation, Michaël Aklin, Associate Professor of Economics and Chair of Policy & Sustainability at the Swiss Federal Institute of Technology in Lausanne, emphasized the need for environmental, economic, and social sustainability into climate policy frameworks. This is particularly important, and challenging given that key sectors of the economy are difficult to decarbonize, such as energy production, transportation, and manufacturing. Additionally, the energy demand in Europe is expected to increase drastically (mainly due to electrification), with supply simultaneously declining (in part due to nuclear power phaseout in several member states, such as Germany). Increasing storage capacity, enhancing demand flexibility, and developing transmission infrastructure all require large, long-term investments, and uncompromising public policy. However, these crucial efforts are at risk due to ongoing political uncertainty. Aklin argued that a politics-resilient climate policy design is essential to avoid market fragmentation, decrease cooperation, and ensure the support for green policies. Currently, industrial policy is seen as the silver bullet, in particular, because it can create economies of scale and ensure political commitment to major projects. However, as Aklin explained, it is not an invincible solution, as such projects may also be undermined by capacity constraints and labour shortages.
Energy Policy Dynamics
Building on Aklin’s insights, Thomas Tangerås, Associate Professor at the Research Institute of Industrial Economics, explored the evolution of Swedish energy policy. Tangerås focused on ongoing shifts in support for nuclear power and renewables, driven by changes in government coalitions. Driven by an ambition to ensure energy security, Sweden historically invested in both hydro and nuclear power stations. In the wake of the Three Mile Island accident, public opinion however shifted and following a referendum in 1980, a nuclear shutdown by 2010 was promised. In the new millennia, the first push for renewables in 2003, was followed by the right-wing government’s nuclear resurgence in 2010, allowing new reactors to replace old ones. In 2016 there was a second renewable push when the left-wing coalition set the goal of 100 percent renewable electricity by 2040 (although with no formal ban on nuclear). This target was however recently reformulated with the election of the right-wing coalition in 2022, which, supported by the far-right party, launched a nuclear renaissance. The revised objective is to achieve 100 percent fossil-free electricity by 2040, with nuclear power playing a crucial role in the clean energy mix.
The back-and-forth energy policy in Sweden has led to high uncertainty. A more consistent policy approach could increase stability and minimize investment risks in the energy sector. Three aspects should be considered to foster a stable and resilient investment climate while mitigating political risks, Tangerås concluded: First, a market-based support system should be established; second, investments must be legally protected, even in the event of policy changes; and third, financial and ownership arrangements must be in place to protect against political expropriation and to facilitate investments, for example, through contractual agreements for advance power sales.
The Path to Net-Zero: A Polish Perspective
Circling back to the need for climate policy to be socially sustainable, Paweł Wróbel, Energy and climate regulatory affairs professional, Founder of GateBrussels, and Managing Director of BalticWind.EU, gave an account of Poland’s recent steps towards the green transition.
Poland is currently on an ambitious path of reaching net-zero, with the new government promising to step up the effort, backing a 90 percent greenhouse gas reduction target for 2040 recently proposed by the EU However, the transition is framed by geopolitical tensions in the region and the subsequent energy security issues as well as high energy prices in the industrial sector. Poland’s green transition is further challenged by social issues given the large share of the population living in coal mining areas (one region, Silesia, accounts for 12 percent of the polish population alone). Still, by 2049, the coal mining is to be phased out and coal in the energy mix is to be phased out even by 2035/2040 – optimistic objectives set by the government in agreement with Polish trade unions.
In order to achieve this, and to facilitate its green transition, Poland has to make use of its large offshore wind potential. This is currently in an exploratory phase and is expected to generate 6 GW by 2030, with a support scheme in place for an addition 12 GW. In addition, progress has been achieved in the adoption of solar power, with prosumers driving the progress in this area. More generally, the private sectors’ share in the energy market is steadily increasing, furthering investments in green technology. However, further investments into storage capacity, transmission, and distribution are crucial as the majority of Polands’ green energy producing regions lie in the north while industries are mainly found in the south.
Paralleling the argument of Aklin, Wróbel also highlighted that Poland’s high industrialization (with about 6 percent of the EU’s industrial production) may slow down the green transition due to the challenges of greening the energy used by this sector. The latter also includes higher energy prices which undermines Poland’s competitiveness on the European market.
Conclusion
The SITE Energy Talk 2024 catalyzed discussions about developing lasting and impactful environmental policies in times of political and economic instability. It also raised questions about how to balance economic growth and climate targets. To achieve its 2050 climate neutrality goals, the EU must implement flexible and sustainable policies supported by strong regulatory and political frameworks – robust enough to withstand economic and political pressures. To ensure democratic processes, it is crucial to address the threat posed by centralised governments decisions, political lock-ins, and large projects (with potential subsequent backlashes). This requires the implementation of fair policies, clearly communicating the benefits of the green transition.
On behalf of the Stockholm Institute of Transition Economics, we would like to thank Michaël Aklin, Thomas Tangerås and Paweł Wróbel for participating in this year’s Energy Talk.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Nuclear Energy Renaissance: Powering Sweden’s Climate Policy
Sweden’s Nuclear Energy Expansion: Is It the Key to Net-Zero Emissions by 2045?
The Swedish government has placed nuclear energy at the forefront of its climate policies, aiming for two new reactors to be operational by 2035 and a total of ten new reactors by 2045. This policy brief explores whether the large-scale expansion of nuclear energy in Sweden is an environmentally and economically viable solution to achieve the nation’s goal of net-zero emissions by 2045. To assess this, we examine three critical factors: potential emission reductions, the cost-effectiveness of nuclear power, and the feasibility of the proposed construction timelines.
As a case study, we compare Sweden’s approach to nuclear energy with the successful nuclear build-out in France during the 1970s. France significantly reduced its carbon dioxide (CO2) emissions while reaping economic benefits, with an average reactor construction time of about six years. However, the situation in Sweden’s nuclear energy sector today differs from France in the 1970s. Sweden already has a low-carbon electricity grid, and the costs of alternative zero-carbon energy sources, such as wind and solar, have dropped considerably. Additionally, the construction costs and timelines for nuclear reactors in Sweden have increased compared to historical norms.
Thus, while nuclear energy in Sweden may contribute to modest emission reductions, the abatement costs are high, and reactor construction is expected to take much longer—up to two or three times longer than France’s build-out. This raises questions about whether Sweden’s nuclear expansion can effectively support the country’s ambitious climate goals.
A Renewed Focus on Nuclear Energy
When the current government in Sweden, led by Prime Minister Ulf Kristersson, came into power in 2022, they swiftly made changes to Sweden’s environment and climate policies. The Ministry of Environment was abolished, transport fuel taxes were reduced, and the energy policy objective was changed from “100 percent renewable” to “100 percent fossil free”, emphasizing that nuclear energy was now the cornerstone in the government’s goal of reaching net zero emissions (Government Office 2023, Swedish Government 2023). This marked a new turn in Sweden’s relationship with nuclear energy: from the construction of four different nuclear power plants in the 1970s – of which three remain operational today – to the national referendum on nuclear energy in 1980, where it was decided that no new nuclear reactors should be built and that existing reactors were to be phased-out by 2010 (Jasper 1990).
Today’s renewed focus on nuclear energy, especially as a climate mitigation policy tool is, however, not unique to Sweden. As of 2022, the European Commission labels nuclear reactor construction as a “green investment”, the US has included production tax credits for nuclear energy in their 2023 climate bill the Inflation Reduction Act, and France’s President Macron is pushing for a “nuclear renaissance” in his vision of a low-carbon future for Europe (Gröndahl 2022; Bistline, Mehrotra, and Wolfram 2023; Alderman 2022).
France As a Case Study
In the 1970s, France conducted an unprecedented expansion of nuclear energy, which offers valuable insights for Sweden’s contemporary nuclear ambitions. Relying heavily on imported oil for their energy needs, France enacted a drastic shift in energy policy following the 1973 oil crisis. In the subsequent decade, France ordered and began the construction of 51 new nuclear reactors. The new energy policy – dubbed the Messmer Plan – was summarized by the slogan: “All electric, all nuclear” (Hecht 2009).
To support the expansion of new reactors, the French government made use of loan guarantees and public financing (Jasper 1990). A similar strategy has recently been proposed by the Swedish government, with suggested loan guarantees of up to 400 billion kronor (around $40 billion) to support the construction of new reactors (Persson 2022).
France’s Emissions Reductions and Abatement Costs
To make causal estimates of the environmental and economic effects of France’s large-scale expansion of nuclear energy, we need a counterfactual to compare with. In a recent working paper – titled Industrial Policy and Decarbonization: The Case of Nuclear Energy in France – I, together with Jared Finnegan from University College London, construct this counterfactual as a weighted combination of suitable control countries. These countries resemble France’s economy and energy profile in the 1960s and early 1970s, however, they did not push for nuclear energy following the first oil crisis. Our weighted average comprises five European countries: Belgium, Austria, Switzerland, Portugal, and Germany, with falling weights in that same order.
Figure 1 depicts per capita emissions of CO2 from electricity and heat production in France and its counterfactual – ‘synthetic France’ – from 1960 to 2005. The large push for nuclear energy led to substantial emission reductions, an average reduction of 62 percent, or close to 1 metric ton of CO2 per capita, in the years after 1980.
Figure 1. CO2 emissions from electricity and heat in France and synthetic France, 1960-2005.
Andersson and Finnegan (2024).
Moreover, Figure 1 shows that six years elapsed from the energy policy change until emission reductions began. This time delay matches the average construction time of around six years (75 months on average) for the more than 50 reactors that were constructed in France following the announcement of the Messmer Plan in 1974.
Table 1. Data for abatement cost estimates.
Andersson and Finnegan (2024).
Lastly, these large and relatively swift emission reductions in France were achieved at a net economic gain. Table 1 lists the data used to compute the average abatement cost (AAC): the total expenses incurred for the new policy (relative to the counterfactual scenario), divided by the CO2 emissions reduction.
The net average abatement cost of -$20 per ton of CO2 is a result of the lower cost of electricity production (here represented by the levelized cost of electricity (LCOE)) of new nuclear energy during the time-period, compared to the main alternative, namely coal, – the primary energy source in counterfactual synthetic France. LCOE encompasses the complete range of expenses incurred over a power plant’s life cycle, from initial construction and operation to maintenance, fuel, decommissioning, and waste handling. Accurately calculated, LCOE provides a standardized metric for comparing the costs of energy production across different technologies, countries, and time periods (IEA 2015).
Abatement Costs and Timelines Today
Today, more than 50 years after the first oil crisis, many factors that made France’s expansion of nuclear energy a success are markedly different. For example, the cost of wind and solar energy – the other two prominent zero-carbon technologies – has plummeted (IEA 2020). Further, construction costs and timelines for new nuclear reactors in Europe have steadily increased since the 1970s (Lévêque 2015).
Figure 2 depicts the LCOE for the main electricity generating technologies between 2009 and 2023 (Bilicic and Scroggins 2023). The data is for the US, but the magnitudes and differences between technologies are similar in Europe. There are two important aspects of this figure. First, after having by far the highest levelized cost in 2009, the price of solar has dropped by more than 80 percent and is today, together with wind energy, the least-cost option. Second, the cost of nuclear has steadily increased, contrary to how technology cost typically evolves over time, meriting nuclear power the “a very strange beast” label (Lévêque, 2015, p. 44). By 2023, new nuclear power had the highest levelized cost of all energy technologies.
Regarding the construction time of nuclear reactors, these have steadily increased in both Europe and the US. The reactor Okiluoto 3 in Finland went into commercial operation last year but took 18 years to construct. Similarly, the reactor Flamanville 3 in France is still not finished, despite construction beginning 17 years ago. The reactors Hinkley Point C in the UK were initiated in 2016 and, after repeated delays, are projected to be ready for operation in 2027 at the earliest (Lawson 2022). Similarly, in the US, construction times have at least doubled since the first round of reactors were built. These lengthened constructions times are a consequence of stricter safety regulations and larger and more complex reactor designs (Lévêque, 2015). If these average construction times of 12-18 years are the new norm, Sweden will, in fact, not have two new reactors in place by 2035. Further, it would need to begin construction rather soon if the goal of having ten new reactors by 2045 is to be achieved.
Figure 2. Levelized Cost of Electricity, 2009-2023.
Source: Bilicic and Scroggins (2023).
Sweden’s Potential Emission Reductions
The rising costs and extended construction times for new reactors are notable concerns, yet the crucial measure of Sweden’s new climate policy is its capacity to reach net zero emissions across all sectors. Figure 3 depicts per capita emissions of CO2 from electricity and heat production in Sweden and OECD countries between 1960 and 2018.
Figure 3. Sweden vs. the OECD average.
Source: IEA (2022).
In 2018, the OECD’s per capita CO2 emissions from electricity and heat averaged slightly over 2 metric tons. In comparison, Sweden’s per capita emissions at 0.7 metric tons are low and represent only 20 percent of total per capita emissions. Hence, the potential for substantial emission cuts through nuclear expansion is limited. By contrast, Sweden’s transport sector, with CO2 emissions more than two times larger than the emissions from electricity and heat, presents a greater chance for impactful reductions. Yet, current policies of reduced transport fuel taxes are likely to increase emissions. The electrification of transportation could leverage the benefits of nuclear energy for climate mitigation, but broader policies are then needed to accelerate the adoption of electric vehicles.
Conclusion: Sweden’s Nuclear Energy Renaissance and Its Impact on Climate Policy
As Sweden rewrites its energy and climate policies, nuclear energy is placed front and center – a position it has not held since the 1970s. Yet, while nuclear energy may experience a renaissance in Sweden, it will not be the panacea for reaching net zero emissions the current government is hoping for. Expected emission reductions will be modest, abatement costs will be relatively high and, if recent European experiences are to be considered an indicator, the aspirational timelines are likely to be missed.
Considering these aspects, it’s imperative for Sweden to adopt a broader mix of climate policies to address sectors such as transportation – responsible for most of the country’s emissions. Pairing the nuclear ambitions with incentives for an accelerated electrification of transportation could enhance the prospects of achieving net zero emissions by 2045.
References
- Alderman, L. (2022). France Announces Major Nuclear Power Buildup. The New York Times. February 10, 2022.
- Andersson, J. and Finnegan, J. (2024). Industrial Policy and Decarbonization: The Case of Nuclear Energy in France. Working Paper.
- Bilicic, G. and Scroggins, S. (2023). 2023 Levelized Cost of Energy+. Lazard.
- Bistline, J., Mehrotra, N. and Wolfram, C. (2023). Economic Implications of the Climate Provisions of the Inflation Reduction Act. Tech. rep., National Bureau of Economic Research.
- Government Office. (2023). De första 100 dagarna: Samarbetsprojekt klimat och energi. Stockholm, January 25, 2023.
- Gröndahl, M-P. (2022). Thierry Breton: ’Il faudra investir 500 milliards d’euros dans les centrales nucléaires de nouvelle génération’. Le Journal du Dimanche January 09, 2022.
- Hecht, G. (2009). The Radiance of France: Nuclear Power and National Identity after World War II. MIT Press.
- IEA. (2015). Projected Costs of Generating Electricity: 2015 Edition. International Energy Agency. Paris.
- IEA. (2020). Projected Costs of Generating Electricity: 2020 Edition. International Energy Agency. Paris.
- IEA. (2022). Greenhouse Gas Emissions from Energy (2022 Edition). International Energy Agency. Paris.
- Jasper, J. M. (1990). Nuclear politics: Energy and the state in the United States, Sweden, and France, vol 1126. Princeton University Press.
- Lawson, A. (2022). Boss of Hinkley Point C blames pandemic disruption for 3bn delay. The Guardian. May 20, 2022.
- Lévêque, F. (2015). The economics and uncertainties of nuclear power. Cambridge University Press.
- Persson, I. (2022). Allt du behöver veta om ’Tidöavtalet. SVT Nyheter. 14 October, 2022.
- Swedish Government. (2023). Regeringens proposition 2023/24:28 Sänkning av reduktionsplikten för bensin och diesel. State Documents, Sweden. Stockholm, October 12, 2023.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Environmental Policy in Eastern Europe | SITE Development Day 2021
The need for urgent climate action and energy transformation away from fossil fuels is widely acknowledged. Yet, current country plans for emission reductions do not reach the requirements to contain global warming under 2°C. What is worse, there is even reasonable doubt about the commitment to said plans given recent history and existing future investment plans into fossil fuel extraction and infrastructure development. This policy brief shortly summarizes the presentations and discussions at the SITE Development Day Conference, held on December 8, 2021, focusing on climate change policies and the challenge of a green energy transition in Eastern Europe.
Climate Policy in Russia
The first section of the conference was devoted to environmental policy in Russia. As Russia is one of the largest exporters of fossil fuel in the world, its policies carry particular importance in the context of global warming.
The head of climate and green energy at the Center for Strategic Research in Moscow, Irina Pominova, gave an account of Russia’s current situation and trends. Similar to all former Soviet Union countries, as seen in Figure 1, Russia had a sharp decrease in greenhouse gas emissions (hereinafter referred to as GHG emissions) during the early 90s due to the dramatic drop in production following the collapse of the Soviet Union. Since then, the level has stabilized, and today Russia contributes to about 5% of the total GHG emissions globally. The primary source of GHG emissions in Russia comes from the energy sector, mainly natural gas but also oil and coal. The abundance of fossil fuels has also hampered investments in renewable resources, constituting only about 3% of the energy balance, compared to the global average of 10%
Figure 1. Annual greenhouse gas emissions per capita
Note: Greenhouse gas emissions are expressed in metric tons of CO2 equivalents. Source: Emissions Database for Global Atmospheric Research (EDGAR).
Pominova noted that it is a massive challenge for the country to reach global energy transformation targets since the energy sector accounts for over 20% of national GDP and 28% of the federal budget. Yet, on a positive note, the number of enacted climate policies has accelerated since Russia signed the Paris Agreement in 2019. One notable example is the federal law on the limitation of GHG emissions. This law will be enforced from the end of 2021 and will impose reporting requirements for the country’s largest emitters. The country’s current national climate target for 2030 is to decrease GHG emissions by 30% compared to the 1990 level. As shown in Figure 1, this would imply roughly a 10 percent reduction from today’s levels given the substantial drop in emissions in the 1990’s.
Natalya Volchkova, Policy Director at CEFIR in Moscow, discussed energy intensity and the vital role it fills in Russia’s environmental transition. Energy intensity measures an economy’s energy efficiency and is defined as units of energy per unit of GDP produced. Volchkova emphasized that to facilitate growth in an environmentally sustainable way it is key to invest in technology that improves energy efficiency. Several regulatory policy tools are in place to promote such improvements like bottom-line energy efficiency requirements, sectoral regulation, and bans on energy-inefficient technologies. Yet, more is needed, and a system for codification and certification of the most environmentally friendly technologies is among further reforms under consideration.
As a Senior Program Manager at SIDA, Jan Johansson provided insights on this issue from an international perspective. Johansson gave an overview of SIDA’s cooperation with Russia in supporting and promoting environmental and climate policies in the country. The main financial vehicle of Swedish support to Russia with respect to environmental policy has been a multilateral trust fund established in 2002 under the European Union (EU) Northern Dimension Environmental Partnership (NDEP). One of the primary objectives of the cooperation has been to improve the environment in the Baltic and Barents Seas Region of the Northern Dimension Area. Over 30 NDEP projects in Russia and Belarus have been approved for financing so far. Seventeen of those have been completed, and the vast majority have focused on improving the wastewater treatment sector.
Johansson also shed light on the differences that can exist between governments in their approach to environmental policy. For example, in the area of solid waste management, Russia prefers large-scale solutions such as landfills and ample sorting facilities. In Sweden and Western Europe, governments have a more holistic view founded on spreading awareness in the population, recycling, corporate responsibility, and sorting at the source.
Environmental Transition in Eastern Europe
In the second part of the conference environmental policies and energy transformation in several other countries in the region were discussed.
Norberto Pignatti, Associate Professor and Centre Director at ISET Policy Institute, talked about the potential for a sustainable energy sector and current environmental challenges in Georgia. The country is endowed with an abundance of rivers and sun exposure, making it a well-suited environment for establishing the production of renewable energy such as wind, solar, and hydro. As much as 95 % of domestic energy production comes from renewable sources. Yet, domestic energy production only accounts for 21% of the country’s total consumption, and 58% of imported energy comes from natural gas and 33% from coal. Furthermore, the capacity of renewable energy sources has declined over the last ten years, and particularly so for biofuel due to the mismanagement of forests. A notable obstacle Georgia faces in its environmental transition is attracting investors. Low transparency and inclusiveness from the government in discussions about environmental policy, along with inaccurate information from the media, has led to a low public willingness to pay for such projects. Apart from measures to overcome the challenges mentioned, the government is currently working on a plan to impose emission targets on specific sectors, invest in energy efficiency and infrastructure, and support the development of the renewable energy sector.
Like Georgia, Poland is a country where energy consumption is heavily reliant on imports and where coal, oil, and gas stand for most of the energy supply. On top of that, Poland faces significant challenges with air quality and smog and a carbon-intensive energy sector. On the positive end, Poland established a government-industry collaboration in September 2021, that recognizes offshore wind as the primary strategic direction of the energy transition in Poland. Pawel Wróbel, Founder and Managing Director of BalticWind.EU, explained that the impact of the partnership will be huge in terms of not only energy security but also job creation and smog mitigation. The plan implies the installation of 5.9 GW of offshore wind capacity by 2030 and 11GW by 2040. Wróbel also talked about the EU’s European Green Deal and its instrumental role in accelerating the energy transition in Poland. By combining EU-wide instruments with tailor-made approaches for each of the member states, the Deal targets a 55% reduction in GHG emissions by 2030 through decarbonization, energy efficiency, and expanding renewable energy generation. Michal Myck, Director of CenEA, highlighted the role of social acceptance in accelerating the much-needed energy transition in Poland. In particular, to build political support, there is a crucial need for designing carbon taxes in a way that ensures the protection of vulnerable households from high energy prices.
Adapting to the European Green Deal will also create challenges for countries outside of the EU, especially if a European Carbon Border Adjustment Mechanisms (CBAM) is put in place in 2026 as suggested. Two participants touched on this topic in the context of Belarus and Ukraine respectively. Yauheniya Shershunovic, researcher at BEROC, talked about her research on the economic implications of CBAM in Belarus. It is estimated that the introduction of CBAM can be equivalent to an additional import duty on Belarusian goods equal to 3.4-3.8% for inorganic chemicals and fertilizers, 6.7-13.7% for metals, and 6.5-6.6% for mineral products. Maxim Fedoseenko, Head of Strategic Projects at KSE, shared similar estimations for Ukraine, suggesting that the implementation of CBAM will lead to an annual loss of €396 million for Ukrainian businesses and a decrease in national GDP of 0.08% per year.
An example of Swedish support to strengthen environmental policies in Eastern Europe was presented by Bernardas Padegimas, Team Leader at the Environmental Policy and Strategy Team at the Stockholm Environment Institute. The BiH ESAP 2030+ project is supporting Bosnia and Herzegovina in preparing their environmental strategy. This task is made more challenging by the country’s unique political structure with two to some extent politically autonomous entities (and a district jointly administered by the two), and elites from the three different major ethnic groups having guaranteed a share of power. The project therefore aims to include a broad range of stakeholders in the process, organized into seven different working groups with 659 members on topics ranging from waste management to air quality, climate change and energy. The project also builds capacity in targeted government authorities, raises public awareness of environmental problems, and goes beyond just environmental objectives: mainstreaming gender equality, social equity and poverty reduction. The project is 80 percent finished and will produce a strategy and action plan for the different levels of governance in the country’s political system. There is also a hope that this process can serve as a model for consensus building around important but at times contentious policy issues more generally in the country.
Public Opinion and Energy Security
Finally, Elena Paltseva, Associate Professor at SITE, and Chloé le Coq, Professor at the University of Paris II Panthéon-Asses (CRED), shared two joint studies relating to the green transition in Europe.
Recent research shows that individual behavioral change has a vital role to play in the fight against climate change, both directly and indirectly through changes in societal attitudes and policies motivated by role models. A precondition for this to happen is a broad public recognition of anthropogenic climate change and its consequences for the environment. The first presentation by Paltseva and Le Coq focused on public perceptions about climate change in Europe (see this FREE policy brief for a detailed account). Using survey data the study explores variation in climate risk perceptions between Western Europe, the non-EU part of Eastern Europe, and Eastern European countries that are EU members. The results show that those living in non-EU Eastern European countries are on average less concerned about climate change. The regional difference can partly be explained by low salience and informativeness of environmental issues in the public discourse in these countries. To support this explanation, they study the impact of extreme weather events on opinions on climate change with the rationale that people who are more aware of climate change risks are less likely to adjust their opinion after experiencing an extreme weather event. They find that the effect of extreme weather events is higher in countries with less independent media and fewer climate-related legislative efforts, suggesting that the political salience of the environment and the credibility of public messages affects individuals’ perceptions of climate change risks.
The second presentation concerned energy security in the EU, and the impact of the environmental transition. It was argued that natural gas will play an important role in Europe’s green transition for two reasons. First, since the transition implies a higher reliance on intermittent renewable energy sources, there will be an increased need for use of gas-fired power plants to strengthen the supply reliability. Second, the electrification of the economy along with the phasing out of coal, oil, and nuclear generation plants will increase the energy demand. Today, about 20% of EU’s electricity comes from natural gas and 90% of that gas comes from outside EU, with 43% coming from Russia. To emphasize what issues can arise when the EU relies heavily on external suppliers, the presentation discussed a Risky External Energy Supply Index (Le Coq and Paltseva, 2009) that considers the short-term impact of energy supply disruptions. This index assesses not only the importance of the energy type used by a country but also access to different energy suppliers (risk diversification). The index illustrates that natural gas is riskier than oil or coal since natural gas importers in the EU depend to a greater extent on a single or few suppliers. Another crucial component of the security of gas supplies arises from the fact that 77% of EU’s net gas imports arrive through pipelines, which creates an additional risk of transit. Here, the introduction of new gas transit routes (from already existing suppliers) may increase diversification and decrease risks to the countries having direct access to the new route. At the same time, countries that share other pipelines with countries that now have direct access may lose bargaining power vis-à-vis the gas supplier in question, as demand through those pipelines could fall. Le Coq illustrated this point applying the Transit Risk Index developed in Le Coq and Paltseva (2012) to the introduction of the North Stream 1 pipeline. She concluded that the green transition and associated increase in demand for natural gas is likely to be associated with higher reliance on large gas producers, such as Russia, and resulting in energy security risks and imbalance in the EU. One way to counteract this effect is to exercise EU’s buyer power vis-a-vis Russia within the EU common energy policy. While long discussed, this policy has not been fully implemented so far.
Concluding Remarks
This year’s SITE Development Day conference gave us an opportunity to highlight yet another key issue, not only for Eastern Europe, but for the whole world: global warming and energy transformation. Experts from across the region, and policymakers and scholars based in Sweden, offered their perspectives on the challenges that lie ahead, but also highlighted initiatives and investments hopefully leading the way towards a brighter future.
List of Participants
- Chloé Le Coq, Professor of Economics at the University of Paris II Panthéon-Assas (CRED). Paris, France. Research Fellow at SITE.
- Maxim Fedoseenko, Head of Strategic Projects at KSE Institute. Kyiv, Ukraine.
- Jan Johansson, Senior Program Manager, SIDA. Stockholm, Sweden.
- Michal Myck, Director of CenEA. Szczecin, Poland.
- Bernardas Padegimas, Team Leader: Environmental Policy and Strategy, Stockholm Environmental Institute. Stockholm, Sweden.
- Elena Paltseva, Associate Professor, SITE/SSE/NES. Stockholm, Sweden
- Norberto Pignatti, Associate Professor of Policy at ISET-PI, and Head of the Energy and Environmental Policy Institute at ISET-PI. Tbisili, Georgia.
- Irina Pominova, Head of Climatwe and Green Energy at the Center for Strategic Research. Moscow, Russia.
- Yauheniya Shershunovic, Researcher at BEROC, Minsk, Belarus. PhD Candidate at the Center for Development Research (ZEF). Uni Bonn.
- Natalya Volchkova, Policy Director at CEFIR, Assistant Professor at the New Economic School (NES). Moscow, Russia.
- Pawel Wróbel, Founder and Managing Director of BalticWind.EU. Poland.
- Julius Andersson, Researcher at SITE. Stockholm, Sweden.
- Anders Olofsgård, Associate Professor and Deputy Director at SITE. Stockholm, Sweden.
Preferences for Redistribution in Post-Communist Countries
Public attitudes toward inequality and the demand for redistribution can often play an import role in terms of shaping social policy. The literature on determinants of the demand for redistribution, both theoretical and empirical, is extensive (e.g., Meltzer and Richard 1981, Alesina and Angelotos 2005). Usually, due to data limitations, transition countries are usually considered to be a homogeneous group in empirical papers on the demand for redistribution. However, new data on transition countries allow us to look more deeply into the variation within this group, and to look at which factors are likely to play a significant role in shaping a society’s preferences over redistribution.
The data we use are from the second round of the EBRD and WB Life in Transition Survey (LiTS) (EBRD Transition Report 2011). This is a survey of nationally representative samples consisting of at least 1000 individuals in each of the 29 transition countries.[1] In addition, and for comparison purposes, this survey also covers Turkey, France, Germany, Italy, Sweden and UK. Furthermore, in six of the countries surveyed – Poland, Russia, Serbia, Ukraine, Uzbekistan and UK – the sample consists of 1500 individuals.
Redistribution is, in general, a complex issue, which can take various forms and rely on different mechanisms. In this policy brief, we will only focus on two forms of public attitudes towards redistribution. The first is direct income redistribution from the rich to the poor and public preferences for or against this form of redistribution. The second is indirect redistribution through the provision of public goods, some of which favor certain groups of population over others. In particular, we will consider preferences over extra government spending allocations in the areas of education, healthcare, pensions, housing, environment and public infrastructure. Generally, we would like to explore in greater detail to what extent there are differences across countries in terms of public preferences over redistribution and what might explain differences both within and across societies.
Both survey rounds include questions regarding public preferences towards income redistribution, direct (from the rich to the poor) and indirect (through government spending towards certain public goods). Data for exploring public preferences for direct redistribution can be obtained from a question in the survey that asks respondents to score from 1 to 10 whether they prefer more income inequality or less. More specifically, in the LiTS 2010, the question is the following:
Q 3.16a “How would you place your views on this scale: 1 means that you agree completely with the statement on the left “Incomes should be made more equal”; 10 means that you agree with the statement on the right “We need larger income differences as incentives for individual effort”; and if your views fall somewhere in between, you can choose any number in between?
Note, however, that we use the reverse of this so that 10 represents greater equality and 1 represents wider differences. Bearing this in mind, figure 1 shows the average scores for redistribution preferences for a selection of the countries for 2010 and shows a sizeable variation ranging from 4.4 (more inequality) in Bulgaria to 7.87 (greater equality) in Slovenia. The mean for Russia is 6.92.
The data also allows for a comparison to be made between these preferences in transition countries and in the developed economies covered in the survey. For instance, Russians are on average close to Germans in their preferences for redistribution, while Estonians and Belarusians prefer less redistribution and are closer to the British, on average.
Figure 1. Preferences for Direct Redistribution
Indirect measures of attitudes towards redistribution can add further depth to these societies’ preferences. In particular, the indirect measures in the 2010 survey are derived from a question that asks respondents to rate from 1 to 7 their first priorities for extra government spending.
Q 3.05a “In your opinion, which of these fields should be the first priority for extra government spending: Education; Healthcare; Housing; Pensions; Assisting the poor; Environment (including water quality); Public infrastructures (public transport, roads, etc.); Other (specify)”?
The country averages for these indirect measures for 2010 are presented in Figure 2. The graph reveals a sizeable cross-country variation. For instance, 43.5% of respondents in Mongolia preferred channeling extra government money to education, while 48.7% of respondents in Armenia selected higher healthcare spending. Almost 39% of respondents in Azerbaijan chose assistance to the poor as the first priority for government spending, while the corresponding figure was only 8.3% in Bulgaria and 4% in the Czech Republic. More than 34% of the Russians choose healthcare as their first priority, another 20% choose education, 15% would like the money to be channeled to housing, 14.5% to pensions, 11% to support the poor, 3% to support environment, and only 2% to public infrastructure (2010).
These numbers highlight that there are sizeable differences across the transition countries regarding preferences for redistribution. Also, regarding the form of indirect redistribution in terms of preferences over how government budgets should be prioritized and allocated. Several groups of factors or determinants are typically listed in academic literature to help explain what drives public preferences over the degree and form of redistribution. In the first group of factors, there are various determinants at the individual level. Within the group of individual determinants, self-interest or rational choice of a degree of redistribution favorable to the individual with usual (individual) preferences are stressed. Alternatively, motives behind a preference for redistribution can be related to social preferences (preferences for justice or equity) and reciprocity. Within this general group of self-interest, attitudes towards risks can be stressed as a crucial factor behind demands for social insurance and hence for indirect forms of redistribution. Individuals’ prospects of upward mobility, expectations about their future welfare or ‘tunnel effect’ in shaping their views and preferences over redistribution are also underlined. Also, the commonly held beliefs about the causes of prosperity and poverty are considered to be important in shaping the public’s attitudes under the umbrella of social preferences.
The literature covers possible institutional determinants for preferences towards redistribution and emphasizes the role of the level of inequality in a society and typically relates to the median voter hypothesis in democracies. It is also stressed that welfare regimes (liberal, conservative) can play a role in shaping the level of public support for redistribution.
Figure 2. Preferences for Indirect Redistribution
A closer examination of the data and estimates of the factors shaping individuals preferences over redistribution in the 2010 survey, are consistent with motives involving strong self-interests of the respondents.[2] Those from richer households have less support for redistribution, with the result being robust to the measure of household income used. The past trend in household income positions is insignificant, while the higher the expected income position of household in the coming four years, the less supportive the respondents are of income redistribution (elasticity -0.1). Those who experienced severe hardships with the recent crisis tend to support redistribution more than those who had little problems or not at all (elasticity 0.13).
Furthermore, the role of preferences towards uncertainty is confirmed: the higher the (self-reported) willingness to take risks, the less likely the individual is to support or favor redistribution. Respondents with tertiary education are less inclined to support redistribution of income from the rich to the poor, compared to those with secondary education (elasticity is -0.4). Having a successful experience with business start-ups also decreases demand for income redistribution from the rich to the poor (elasticity -0.3). Those living in rural areas are more in favor of redistribution compared to metropolitan areas, while living in urban areas shows the same level of support for redistribution as those living in metropolitan areas. In each of these cases, it appears that those who would benefit the most from redistribution favor it more than those who view it as coming at their expense, or possible expense in the future.
Beliefs regarding the origins of success and poverty are also shown to be statistically significant and negative, as predicted: those who believe effort and hard work or intelligence and skills are the major factors for success are less supportive of income redistribution (elasticity -0.16). Those who consider laziness and lack of will power the major factors for people’s lack of success are also, consistently, less supportive of redistribution (elasticity -0.2).
It also turns out that better democratic institutions are correlated with a higher demand for redistribution. The result is robust across the measures used, i.e. it does not seem to depend on the particular measure used. The size of the effect is quite pronounced: a one standard deviation increase in the democracy measure increases demand for redistribution from 16 percentage points, when the voice and accountability measure is used, to 33 and 36 percentage points when controls of the executives and democracy index are used.
Furthermore, the better the governance institutions, as measured by the rule of law and control of corruption indexes, the higher is the demand for redistribution. However, the result is not robust to the various measures used. Government effectiveness appears to be insignificant (though with a positive direction), and the regulatory quality measure is insignificant but with a negative direction. The size of the effects is again quite pronounced. A one standard deviation increase in the rule of law measure increases demand for redistribution by 17 percentage points, and a one standard deviation increase in the control of corruption measure increases demand for redistribution by 27 percentage points.
The higher the level of inequality, the larger is the demand for redistribution as might be expected. This result is robust across all measures used. The size of the effect varies from 16 to 18 percentage points in response to a one standard deviation increase.
A regression analysis of preferences towards indirect redistribution also shows that self-interest motives are very pronounced, but there are traces of social preferences as well. In particular, younger people (age 18-24) would like to have more subsidized education and housing at the expense of healthcare and pensions in comparison with the age 35-44 reference group. Those in the age 25-34 group would like to redistribute public spending to housing and environment at the expense of education, pensions and public infrastructure. Respondents in the age 45-54 group would also like to redistribute additional spending from education but to pensions. The two groups of older people (age 55-64 and 65+) would like to shift extra spending from education and housing to healthcare and pensions. The group of age 65+ would also like to shift money from assistance to the poor.
Respondents with tertiary education (in comparison with holders of a secondary degree) favor extra spending for education, environment and public infrastructure at the expense of healthcare, pensions and assisting to the poor, thus revealing additional elements of social motivations. Respondents with primary education, when compared to holders of secondary degree, would like to redistribute public money from education to pensions and assistance to the poor. Respondents with poor health favor additional spending on healthcare and pensions at the expense of education.
High skilled (in terms of occupational groups) respondents would like to redistribute public money from pensions to education. Those with market relevant experience of being successful in setting up a business tend to support education and public infrastructure at the expense of housing and pensions, though the result lack statistical power.
Respondents from households with higher income support extra spending for education, environment and public infrastructure at the expense of healthcare, pensions and assistance to the poor; again pointing to the other elements of possible social motivations. Those with a self-reported positive past trend in income position tend to support spending extra money on the environment at the expense of assistance to the poor (the latter lacks statistical power). If the respondent lives in its own house or apartment, s/he tends to support redistribution from housing and assistance to the poor, to healthcare and pensions.
Respondents whose households were strongly affected by the crisis would like expenditure on environment and public infrastructure to be reduced. Those with higher self-reported willingness to take risks would redistribute extra public money to education at the expense of healthcare and housing.
Respondents who believe that success in life is mainly due to effort and hard work, intelligence and skills favor education at the expense of assistance to the poor and public infrastructure, suggesting they might view education as the key to escape poverty. Those who think that laziness and lack of willpower are the main factors behind poverty would, unsurprisingly, redistribute extra public money from assistance to the poor to healthcare.
Males (as compared to females) favor extra spending on education, housing, environment and public infrastructure at the expense of healthcare. The self-employed favor extra spending of public money to pensions at the expense of housing. There is no difference across respondents living in metropolitan, rural or urban locations.
A regression analysis shows that better democratic institutions are correlated with higher support for allocation of additional public spending to education and healthcare, environment and public infrastructure. The effects are larger for education and healthcare: one standard deviation in the democracy index increases the support for spending money on education by 3 percentage points, for healthcare by 3.1 percentage points, and only by 0.4 and 0.6 percentage points for environment and public infrastructure, respectively. This reallocation is at the expense of assistance to the poor (3.5 percentage points), housing (2.6 percentage points) and pensions (1.1 percentage points). The pattern is robust to the measure of democratic institutions used, though the marginal effects vary slightly depending on the measure.
The influence of governance institutions is similar. Respondents in countries with better governance institutions favor allocation of extra public money to education (3.2 percentage points in response to one standard deviation in government effectiveness), health care (2.9 percentage points), environment (0.9 percentage points) and public infrastructure (0.6 percentage points). The reallocation is at the expense of assistance to the poor (4.2 percentage points), housing (3.3 percentage points) and pensions (0.2 percentage points). The pattern is also robust to the measure of governance institutions with the marginal effects varying slightly depending on the measure.
The higher the level of inequality in a country, the higher the demand for spending extra public money for education at the expense of assistance to the poor, pensions and public infrastructure. A one standard deviation increase in the index, increases demand for spending extra public money on education by 3.8 percentage points, and decreases spending on assistance to the poor by 2 percentage points, pensions by 1.9 percentage points, and public infrastructure by 0.06 percentage points. The results are robust to the inequality measure used.
Overall, the analysis provides empirical evidence that transitional countries are not homogeneous with respect to preferences for redistribution, with sizeable variations in country averages and in public preferences. The study of individual determinants of preferences for redistribution confirms a dominant role of self-interest, with some indications of social sentiments as well. In addition to the usual measures used in individual level analysis, these data allow better control for both positive and negative personal and household experience. The study of institutional determinants also confirms the role of income inequality in shaping public attitudes. In particular, higher inequality is confirmed to increase the demand for direct income redistribution. A novel motive of the paper is the influence of democracy and governance institutions on demand for redistribution. Better democracy and governance institutions are likely to stimulate demand for income redistribution, revealing both higher societal demand for redistribution and appreciation of the potential capability of the government to implement redistribution effectively.
The study of individual determinants of indirect demand for redistribution adds to the overall picture and confirms not only the self-interest motives but also social preferences especially pronounced among people with tertiary education and in high income groups. Better democratic and governance institutions stimulate redistribution of public money towards education, healthcare, environment and public infrastructure, while weaker democratic and governance institutions increases demand for allocation of public money to assistance to the poor, housing and pensions.
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References
Meltzer, A., Richards, S., 1981. “A Rational Theory of the Size of Government”. Journal of Political Economy 1989, 914–927.
Alesina, A., Angeletos, G.M., 2005. “Fairness and Redistribution”. The American Economic Review, 95(4), 960-98
[1] The countries covered were: Albania, Armenia, Azerbaijan, Belarus, Bosnia, Bulgaria, Croatia, Czech Republic, Estonia, FYROM, Georgia, Hungary, Kazakhstan, Kosovo, Kyrgyzstan, Latvia, Lithuania, Moldova, Mongolia, Montenegro, Poland, Romania, Russia, Serbia, Slovak Republic, Slovenia, Tajikistan, Turkey, Ukraine and Uzbekistan.
[2] The basic empirical equation to study individual determinants of public preferences towards income redistribution is the OLS with country fixed effects (for direct redistribution) and multinomial regression with country fixed effects (for indirect measures). When studying the influence of institutions, the equations are transformed to replace country fixed effects with an institutional measure (one at a time). To control for the basic economic differences, average GDP per capita was included.